Quasi-regulatory Behaviour of the Transmission System Operator – Minimise or Legitimise?

Transmission system operators play a very important role in natural gas markets, influencing the general business environment for market participants. This paper proposes a notion of quasi-regulatory behaviour of the transmission system operator. Quasi-regulatory behaviour is understood as acts of TSOs which affect the regulatory situation of other market participants, are difficult to negotiate or oppose, and do not arise from undisputable legal authority. In some cases it can weaken the policy instruments applied by national regulatory authorities and prevent desired outcomes; then, it should be minimised, i.e. subjected to more precise regulatory oversight. However, in other cases, quasi-regulatory behaviour can help fill gaps in the regulatory systems, or be more efficient than a national regulatory authority’s actions, thus contributing to achieving the desired policy outcomes – then, it should be legitimised, i.e. expressly granted by law or administrative decisions. Using specific examples, the paper shows which institutional setting factors and market phenomena signal one or the other state of affairs, and which behaviour is eligible to which solution. First, quasi-regulatory TSO’s behaviour is defined, after which its origin is explained. Then, select cases are discussed to exemplify the explored issue. These are examined against other systems through a comparison of chosen aspects. Next, theoretical solutions to the identified problem are proposed, along with application to other sectors than natural gas transmission. The paper is concluded with a summary of rationale behind the idea of minimisation and legitimisation, and a proposal for questions to be asked to determine whether and to what extent the problem exists in a given jurisdiction.

Acknowledged Paper of the 2015 ERRA Regulatory Research Award.